Method and system automates a comprehensive, on-going survey of forward-looking financial estimates entering projected financial statements and valuation calculations

Abstract

The invention embodies a method, and computer software, that automates comprehensive surveys of forward-looking numeric estimates, in financial valuation models, of companies that report period financial results to the United States Securities and Exchange Commission (US SEC). The method provides an immediate, in-kind exchange of financial information, so that a participant may compare his or her individual estimates, to an aggregation of peer estimates, in the same categories. The method specifies survey categories as: (i) the exact accounting categories used by the company in its period financial reports to the US SEC, or, (ii) the exact adjustments used to convert “accrual accounting” values to the “cash accounting” values used in the valuation method of “discounting free cash flows to the firm”. The claim specifies test criteria for: fidelity to the accounting categories of the reporting company; comprehensiveness of the survey; and, an immediate feed-back of in-kind information to participants.

We claim: 
     
         1 . A method and software, operating on a computer server and through an internet interface, which mediates a comprehensive on-going survey of: (1) future values for every persistent accounting line-item in a projection model of a company or municipality, and, (2) values of components of calculation of entity value by the method of discounting cash flows to the firm—for the purpose of providing respondents with immediate perspective, on where their individual estimates lie, within the survey's current sample-distribution of peer estimates, for the same accounting line-item and valuation categories.
 The claimed type of survey uses the exact accounting nomenclature, as specifically used by each subject-company or subject-municipality in its period financial reports to the US SEC or similar national or transnational monitor. Where certain accounting line-items appear only for a single reporting period, these may be ignored by the survey. Any changes made, to a line-item category name, shall preserve the original meaning, while improving brevity and preventing confusion. (For example, a company might use the same category name in two places in one financial statement, such as “Deferred tax” appearing in both the “Assets” and “Liabilities” sections of a Balance Sheet. The company assumes a human reader will discriminate by the context, but such duplication confuses a computer). 
 The claimed accounting line-item categories surveyed are organized into standard financial report statements and displays of valuation calculations by the method of discounting free cash flows to the firm (“DFCFF”). In the invention, each subject-entity is represented by five financial statements: future Income Statements (both annual and quarterly); future Balance Sheets; and, calculations for discounted free cash flows to the firm (DFCFF). The display of valuation calculations by the method of discounting free cash flows to the firm is as described in standard texts of equity asset valuation (see Arzac or Stowe). Surveys of non-standard accounting line-item categories (often used in cross-sectional analysis) are not claimed. 
 The claimed type of survey employs a comprehensive structure for the reporting entity (company or municipality) that includes all the persistent accounting line-item categories of both annual and quarterly Income Statements and Balance Sheets, across several projected reporting periods, as well as the DFCFF calculations associated with these categories. Selective surveys of opinions, as to the future value of single accounting line-items for a single future period, are not claimed. Surveys (archives) of historical financial data, whether comprehensive or selective, are not claimed. 
 The claimed type of survey provides immediate “feed-back” to the respondent, in an immediate in-kind exchange of individual estimates for aggregated peer estimates. This feedback specifies where the respondent's individual projection values lie within the current sample distribution of peer projections, for the same accounting line-item category and projected time period. Comprehensive surveys of respondent financial opinions, which do not provide immediate feed-back to the respondent, but which are assimilated by a study editor, and are later reported to consumers in essay form, are not claimed. 
 We propose a simple test to define the boundaries of the claim. The test provides parameters for deciding that the survey: (a) uses the exact accounting nomenclature of the reporting entity (business or municipality), AND, (b) provides a comprehensive series of accounting categories to capture forward-looking financial estimates, AND, (c) provides immediate in-kind feed-back to the respondent. 
 (a) The claimed survey will be considered to use the exact accounting line-item names used by a business or municipality if it uses the same first 20 letters of the specified accounting line item. Parenthetical explanations, or, specifications of amounts included in the category for one reporting period, may both be ignored. Other text may be added to the survey category name in situations where the original accounting name is ambiguous to a computer database. (For example, when the business or municipality reports “Deferred tax” in both the Assets and the Liabilities sections of its Balance Sheets, the survey may add text to make these category names unambiguous to a computer database. The first use might be called “Deferred tax asset” and the second use might be called “Deferred tax liability”.) 
 (b) The claimed survey of forward-looking financial estimates can be considered comprehensive if it contains 90% or more of the usually-reported accounting line-items (row names) of the annual and quarterly Income Statements, AND the annual and quarterly Balance Sheets, AND the component calculations of discounting free cash flows to the subject-firm. Certain accounting line item categories are not “usually reported” when they appear in one period report, but not in the previous or subsequent reports of the same type. (For example, “Gains or losses on the sale of assets”, may be one-time events that would not be reported in previous, or subsequent, Income Statements, and so, would not be included in our test of comprehensiveness.) 
 (c) The claimed survey will be considered to provide an immediate feed-back of in-kind information if the survey provides a display that compares the respondent's estimate to the mean value of the aggregate of peer estimates in the selected accounting line-item and reporting period. To be considered “immediate” the in-kind information display must become available within 60 minutes of the respondent's submission.